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The government’s long-awaited grant letter has limited new cuts to English university funding, an outcome seen as a victory for Nick Clegg and David Willetts over the Treasury.

The letter, sent by the Department for Business, Innovation and Skills to the Higher Education Funding Council for England each year, was much delayed after a budget row between the Treasury and BIS. The department had been under pressure to find savings after an overspend caused in part by its failure to control spending at private providers.

Mr Clegg, the Liberal Democrat leader, made student opportunity funding for the poorest a “red line” in the budget talks, said a source with knowledge of the discussions. But Danny Alexander, the Lib Dem chief secretary to the Treasury, is said to have called the cash a “slush fund” for universities.

The sector will get from Hefce a total of £4.09 billion in 2014-15, down from the £4.21 billion indicative funding set out in last year’s grant letter, a fall of £125 million (including a £45 million net reduction in teaching grant).

The letter also spells out a rise of £20 million in teaching capital funding, compared with last year’s indicative levels, and it slightly increases the ring-fenced science and research resource budget to £4.7 billion.

The £37 million Access to Learning Fund, which provided discretionary maintenance grants to poorer students, has been scrapped as a separate funding stream and merged into the Student Opportunity Fund, worth £332 million this year.

But that was still seen as a positive outcome for student opportunity money – which Mr Alexander reportedly wanted scrapped and which the Million+ group of newer universities has lobbied to protect.

Ahead of the letter’s arrival this week, Hefce scheduled a board meeting for 25 February to decide how to divide the funding.

Nick Hillman, director of the Higher Education Policy Institute, said the grant letter was a “success” for BIS and for the sector’s lobbying.

The Treasury, he argued, “could not bear more bad headlines while trying to promote the removal of student number controls. The settlement also reflects different priorities within the coalition, which were clearly being played off against one another.”

Meanwhile, capital funding for the research councils will more than double in 2015-16 compared with what was originally allocated for 2014-15. The specific allocations for the science and research budget reveal that only the Medical Research Council will receive a capital funding rise of less than 97 per cent, based on figures released at the 2010 spending review.